Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Sri Lanka: Struggling to Avert Being The "Next Argentina" Amid Unsustainable Debt

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Credit

Sri Lanka Government International Bond / Credit

Sri Lanka Government International Bond (SRILAN GOVT)

In our last report dated 12-May-20 ( <a href="https://www.smartkarma.com/insights/sri-lanka-no-default-this-year" target="_blank" data-smartkarma-citation="insights:39301" rel="noopener">SRI LANKA: No Default This Year</a> ), we highlighted the fact that Sri Lanka will not default this year. We also compared <a href="https://www.smartkarma.com/entities/sri-lanka-government-international-bond" target="_blank" data-smartkarma-citation="entities:28349:1" rel="noopener">Sri Lanka Government International Bond (SRILAN GOVT)</a> with its closest Asian peers such as Mongolia, Papua New Guinea, Tajikistan, Pakistan, and Iraq. In this report, we update with recent events on the country and relative valuation of Sri Lanka’s SRILAN complex.
Despite deterioration in macroeconomic fundamentals (falling revenue vs. USD1bn debt instalment in October) further worsened by COVID-19, we remain confident that it is unlikely for Sri Lanka to default on its debt obligations in the next 12 months, given its success in securing new credit facilities partially offset by a suspension of IMF Extended Fund Facility (EFF) this month.  
S&amp;P’s downgrade of Sri Lanka’ s issuer credit rating to B- from B should lead to Moody’s downgrade of the same rating to B3 from B2 in October in the worst case scenario of which we do not believe investors will be surprised with. We have viewed Sri Lanka as a B- sovereign credit and at the “B-“ range, and we see the SRILAN complex as attractive versus peers despite a rally. We like SRILAN 21s to 24s as the most attractive within the SRILAN complex and assign our OVERWEIGHT recommendation. We assign a NEUTRAL recommendation to the rest of the SRILAN complex.
The Asian USD bond universe has outperformed since many countries exited the first wave of COVID-19. Our base case scenario calls for the mass adoption of vaccines to be at least a year away and we expect the default trend to head upward and the global economy to slowly make a comeback, starting in 2022. That said, we expect a depressed yield environment to make Asian USD bonds attractive versus developed market USD bonds. That said, we expect defensive sectors such as sovereign, telecommunications, utilities, insurance, and defence to outperform cyclical sectors towards 2021. We also like issuers which will be supported implicitly and explicitly by sovereign credits.

In our last report dated 12-May-20 ( SRI LANKA: No Default This Year ), we highlighted the fact that Sri Lanka will not default this year. We also compared Sri Lanka Government International Bond (SRILAN GOVT) with its closest Asian peers such as Mongolia, Papua New Guinea, Tajikistan, Pakistan, and Iraq. In this report, we update with recent events on the country and relative valuation of Sri Lanka’s SRILAN complex.
Despite deterioration in macroeconomic fundamentals (falling revenue vs. USD1bn debt instalment in October) further worsened by COVID-19, we remain confident that it is unlikely for Sri Lanka to default on its debt obligations in the next 12 months, given its success in securing new credit facilities partially offset by a suspension of IMF Extended Fund Facility (EFF) this month.  
S&amp;P’s downgrade of Sri Lanka’ s issuer credit rating to B- from B should lead to Moody’s downgrade of the same rating to B3 from B2 in October in the worst case scenario of which we do not believe investors will be surprised with. We have viewed Sri Lanka as a B- sovereign credit and at the “B-“ range, and we see the SRILAN complex as attractive versus peers despite a rally. We like SRILAN 21s to 24s as the most attractive within the SRILAN complex and assign our OVERWEIGHT recommendation. We assign a NEUTRAL recommendation to the rest of the SRILAN complex.
The Asian USD bond universe has outperformed since many countries exited the first wave of COVID-19. Our base case scenario calls for the mass adoption of vaccines to be at least a year away and we expect the default trend to head upward and the global economy to slowly make a comeback, starting in 2022. That said, we expect a depressed yield environment to make Asian USD bonds attractive versus developed market USD bonds. That said, we expect defensive sectors such as sovereign, telecommunications, utilities, insurance, and defence to outperform cyclical sectors towards 2021. We also like issuers which will be supported implicitly and explicitly by sovereign credits.

Pakistan Government International Bond (PKSTAN GOVT)

SRI LANKA: Surviving Between a Rock and a Hard Place